Investing Psychology: What Do You Chase?

Do serious investors care more about RETURNS or more about FUNDING A LIFE of big dreams

and worthwhile goals? What do you chase?

Once upon a time, as I read to my son from the book “Fifty Famous Stories Retold”, there was a knight who rode valiantly all through the land on his trusty steed doing good things for citizens as his full-time occupation. Soon, everyone began to trust him and pay him generously for his service to others, and all through that time his horse served him faithfully and saved his life on many occasions. Over time his desire to serve became fueled entirely by money and his heart changed. As the knight grew older his horse found himself abandoned on a roadside and left to survive on his own while the knight spent his “retirement” alone in his home counting his gold coins over and over again, claiming the horse cost too much to care for anymore. The horse wandered, starving, into a nearby town and began nibbling on a grape vine that hung from the bell of justice established by the King, ringing the bell and summoning the judges to hear the case of the ringer who had been wronged. They saw the starving horse, knew who he belonged to, and judged that the knight should give the horse half of his fortune to live out the rest of his life in well-earned dignity.

There are many important lessons in this story, but perhaps most relevant to the psychology of investing is the shift within the knight that led him to care more about returns than funding a great life, but clearly it didn’t start out that way, and in the end he not only lost half his wealth but also his dignity, respect, honor, & faithful companion. One researcher of investing psychology calls this the “Wealth-Management Paradox”, which, simply put states that the most serious investors are not primarily driven by returns but rather they are driven first and foremost by funding a great life for themselves, their families, and their employees. In other words, they approach investments from a different perspective: how a particular property will help them fund the kind of life they want. But perhaps what is most paradoxical about what you chase as an investor is that often we don’t know what we want, the kind of life we want to fund, or what truly makes us happy until we experience something or until we find ourselves miserable.

To be a bit Jungian, this goes all the way back to childhood and the stubbornness of having to learn our life lessons ourselves, which means failure, which means having an ah-ha! moment, and hopefully before we lose everything and start all over again the right way and investing for goals by looking at investments as life-funders. I have a motorcycle that I’ve ridden all over the US and parts of Canada, pre-kid. My trusty steed just sits under a tarp now. I miss the adventures we had but I love my four year old more. It wasn’t until this weekend at the family ranch in Texas that my cousin and I took our four year olds on 4-wheelers, racing over rocks and cactus, kickin’ up dust. It is time to find the motorcycle a new, loving owner and a new reason to FUND A LIFE. ■ LIVE YOUR REASON. ■